ORDER
U.L. Bhat, C.J.
1. The following question has been referred by the Income Tax Appellate Tribunal at the instance of the Revenue under Section 256(1) of the Income Tax Act, 1961 :-
'Whether on the facts and in the circumstances of the case, the Tribunal was correct in interpreting the word 'regular assessment' in the light of the rulings of the Calcutta High Court in : [1977]106ITR38(Cal) and the Madras High Court in 126 ITR 1251 ?
2. The dispute relates to assessment years 1975-76 and 1976-77. The assessee had paid advance tax in instalments during the two accounting years. The Income Tax Officer completed assessment, determining the taxable income and found that the advance tax paid was in excess of the tax assessed. The assessee thereby became entitled to refund. Not being satisfied with the assessment orders, the assessee preferred appeals before the CIT (Appeals) who further reduced the taxable income and the tax payable, whereupon further amounts became liable to be refunded to the assessee. The department refunded the amounts payable to the assessee. He claimed interest on these amounts under Sections 214 and 244(14). The claim was rejected by the Income Tax Officer. In appeals filed by the assessee, the C.I.T (Appeals) upheld the claim of the assessee and directed the Income Tax Officer to work out the exact amount due as interest under Sections 214 and 244 of the Act. The Tribunal allowed the application filed by the Revenue for reference under Section 256(1) of the Act.
3. For both the assessment years, the assessee had paid advance tax and submitted returns and the ITO completed assessments under Section 143(3) of the Act. There was no occasion to invoke Section 147 or even Section 144.
4. There is no controversy about the conclusion of the Tribunal that the assessee is entitled to interest under Section 244 of the Act. The controversy relates only to the interest which may be payable under Section 214 of the Act.
5. Sub-section (1) of Section 214, as it stood at the relevant time, read as under :
'214. Interest payable by Government-(1) The Central Government shall pay simple interest at twelve percent per annum on the amount by which the aggregate sum of any instalments of advance tax paid during any financial year in which they are payable under Sections 207 to 213 exceeds the amount of tax determined on regular assessment, from the 1st day of April next following the said financial year to the date of the regular assessment for the assessment year immediately following the said financial year, and where any such instalment is paid after the expiry of the financial year during which it is payable by reason of the provisions of Section 213, interest as aforesaid shall also be payable on that instalment from the date of its payment to the date of regular assessment.....'
Sub-section (1) of Section 214 deals with liability of the Government to pay interest from the 1st of April next following the financial year till the date of regular assessment. Interest is payable on the difference between the total advance tax paid during the financial year and the amount of the tax determined on regular assessment. Sub-section (1) of Section 214 can apply only in cases where there has been regular assessment. Section 2(40) of the Act defines 'regular assessment' as assessment made under Section 143 or 144. Since entitlement under Section 214 is restricted to cases of regular assessment and interest is payable upto the date of regular assessment, the meaning and amplitude of the words 'regular assessment' have to be appreciated. According to the Revenue, 'regular assessment' means only the first assessment made by the Assessing Officer and will not take the cases where such assessment has been modified in appeal or second appeal. In the two assessments involved in this case, original orders of assessment were passed on 2-3-1979 and 17-3-1979 respectively and the appellate order was passed on 3-5-1980. According to the Revenue, interest is payable under Section 214(1) only till 2-3-1979 and 17-3-1979 respectively while according to the assessee interest is payable till 3-5-1980.
6. Section 240 of the Act deals with refund on appeal or other proceedings. It states that where, as a result of any order passed in appeal or other proceeding under the Act, refund of any amount becomes due to the assessee, the Income Tax Officer shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf. Sub-section (1) of Section 244 as it stood at the relevant time required that in case of refund in pursuance of an order referred that in case of refund in pursuance of an order referred to in Section 240, if it is not made within a period of three months from the end of the month in which the order in appeal was passed, the Government shall pay to the assessee simple interest at 12% per annum on the amount of refund and from the date immediately following the expiry of the period of three months, aforesaid till the date on which the refund is granted. The interest contemplated in Section 244(1) is interest for the period subsequent to the date of order of assessment or appellate order.
7. Chapter XX of the Act deals with appeal and revision. Orders of appellate authority shall be communicated to the assessee and to the Commissioner. Where the assessing Officer completes assessment and determines the tax payable, or exempts the person concerned from payment of tax and the order is modified by the first appellate, the second appellate or the revisional authority, it is such final order that is binding on all the parties. Where regular assessment has been made i.e. assessment has been made under Section 143(3) and Section 144 of the Act, the nature of the assessment cannot be said to have altered because of the intervention of the first appellate, second appellate or the revisional authority. Where any modification is made by the superior authority, it will not render the modified assessment.....something other than regular assessment. The original assessment order made under Section 143(3) or 144 merges in the order of the superior authority. Whether the jurisdiction of the appellate or revisional authority has been invoked or not and if invoked, whether the superior authority has interfered or not, the assessment continues to be regular assessment within the meaning of Section 2(40) of the Act.
8. This view is consistent with the scheme of refund and interest contained in Sections 214 and 244 of the Act. The former contemplates interest payable upto the date of regular assessment while the latter contemplates interest payable during a period after passing of an order in appeal or other proceedings, that is, a future period. To hold that the words 'regular assessment' in Section 214 should be understood as meaning only assessment by the assessing officer and not as including the order modifying the assessment order by appellate or revisional authority will lead to absurd results. Take a case where the assessing authority arrives at a correct decision and fixed the taxable income at such an amount as to entitle the assessee to obtain refund of part of the advance tax paid and the order is not interfered with by the appellate or revisional authority. In such a case the assessee would be entitled to interest on the refundable amount till the date of regular assessment. Take a case where the assessing officer by an erroneous view of law or facts holds that tax payable is equal to the advance tax paid in which case no refund would be due and the appellate authority corrects the error committed by the assessing officer and reduces the quantum of taxable income in which case the assessee would be entitled to refund. If this modified assessment is to be regarded as falling outside the purview of the words 'regular assessment' the assessee would not be entitled to interest under Section 214. This would mean that where the assessing officer passes a correct order, the assessee will be entitled to interest but where he passes an erroneous order which is corrected by a superior authority, the 'assessee would be denied interest. There is nothing in the scheme of the provisions relating to refund and interest which justifies such a restricted meaning being given to the words 'regular assessment' occurring in Section 244(1). 'Regular assessment' means assessment under Section 143(3) or 144 of the Act. Where assessment has been made under Section 143(3) or 144 of the Act it is regular assessment whether the final order of assessment is the one passed by the Assessing Officer or the one passed by the assessing officer as modified in appeal or revision.
9. There is conflict of opinion among the various High Courts in regard to this controversy. The High Courts of Gujarat, Calcutta, Madras and Rajasthan have taken the view expressed by us. (See Bardolia Textile Mills v. I.T.O. Circle II, Surat, : [1985]151ITR389(Guj) Chloride India Ltd. v. CIT, West Bengal : [1977]106ITR38(Cal) T.U.S.C. Ltd. v. C.I.T. : [1980]126ITR125(Mad) Super Spinning Mills v. C.I.T. and another : [1993]199ITR832(Mad) . and C.I.T. v. M. L. Sanghi . The High Courts of Bombay, Guahati, Kerala and Andhra Pradesh have taken a contrary view. See C.I. T. v. Carona Sahu Co. Ltd : [1984]146ITR452(Bom) Moheema Ltd. v. C.I.T. C.I. T. v. G. B. Transports : [1985]155ITR548(Ker) . and Nizam's Religious Endowment Trust v. I.T.O. : [1981]131ITR239(AP) )
10. In an elaborate judgment, the Full Bench of the Gujarat High Court has adverted to the entire case law on the controversy. We are in respectful agreement with the view taken in the said decision and other decisions on the same lines. With great respect, we are unable to agree with the contrary decisions for the reasons which we have already indicated.
11. The Tribunal was justified in coming to the conclusion that the assessee is entitled to interest under Section 214 relying on the decisions in 106 ITR 30 and : [1980]126ITR125(Mad) The question referred is answered in the affirmative i.e. in favour of the assessee and against the Revenue.
12. A copy of this order under the signature of the Registrar and seal of the High Court shall be transmitted to the Appellate Tribunal. There shall be no order as to costs.